Friday, March 5, 2010

As the last person under the age of 40 but over the age of 22 to not have a Facebook account, I have no particular affinity for the entity other than from an investing standpoint. With Wall Street's salesmanship and the retail investor's love for anything they can touch, feel, and interact with each day, I contend that just as Visa (V) was IPO of the year in 2008 [Feb 4, 2008: Visa IPO Seeks Mastercard Riches].... a Facebook IPO will rival the hype around Google (GOOG) earlier in the decade. Even if Facebook does not make a red cent at this time (I don't know their profitability). The question is does Mark Zuckerberg want to ascend from filthy rich to "Sergei & Larry" rich in 2010, 2011, or 2012? I certainly hope it comes after I am up and running, because this is one IPO placement I want to have my hands all over. Based on the story, there appears to be no rush.

Most everyone in Silicon Valley and on Wall Street agrees: The eventual IPO of social-networking site Facebook could make its founder the world's richest twenty-something. Yet Chief Executive Mark Zuckerberg, now 25, seems intent on deferring that multibillion dollar payday.

He's huddled with executives like Intel CEO Paul Otellini and Oracle Corp. President Charles Phillips—the goal being to extract wisdom about how to better run his independent company. He set up a dual-class voting structure that would make him less beholden to any public shareholders. And last year, when staffers began itching for richer rewards, he devised a way for them to cash in some of their Facebook stock—without pushing the IPO button.

"We're going to go public eventually, because that's the contract that we have with our investors and our employees," Mr. Zuckerberg said during a recent interview. But, he added, "we are definitely in no rush."

At the same time, his delayed-gratification approach offers some insights into what a publicly traded Facebook might eventually look like. It also highlights some of the challenges Mr. Zuckerberg is apt to face in balancing public ownership with his zeal for tight creative and financial control.

Employees say he's a demanding boss—one who loves to engage in debate but isn't big on lavishing individual praise. According to one engineer, who wrote an internal memo called "Working with Zuck," it is unwise to "expect acknowledgment for your role in moving the discussion forward; getting the product right should be its own reward."

Mr. Zuckerberg fits into a long queue of tech barons with grand ambitions. Apple Inc. Chief Executive Steve Jobs in the early 1980s proclaimed that the Macintosh would revolutionize computing. Google Inc.'s founders boasted that its search engine would "organize all the world's information." But unlike some of his predecessors, Mr. Zuckerberg doesn't need huge cash reserves to build factories, a global distribution system or even a massive marketing machine. "If you don't need that capital, then all the pressures are different, and the motivations [to go public] are not there in the same way," Mr. Zuckerberg says.

A micromanager, Mr. Zuckerberg has cut down on his meeting obligations and now delegates to senior-level staffers so that he can spend more time mulling Facebook's broader, strategic game plan. (Among other things, he's ruminated what the company would do if it had a trillion dollars at its disposal.) He still has the final word on most product decisions and readily abandons concepts a year or more in the making.

That luxury, of being light on one's corporate feet, is partly what he fears he may have to sacrifice with an initial public offering. Rather than nurture long-term goals, he worries that his staffers might become "focused on an announcement, and how that plays out and whether the stock price goes up," he says.

Sounds like he already knows the pressures of Wall Street.... remember, if you don't beat quarterly expectations by at least 2 pennies your stock is trash, can lose 20% of its value overnight and your company is headed for the graveyard ;) Planning for things out 2 years? Laughable... 90 days is an eternity on the Street.

Mr. Zuckerberg has passed up several opportunities to sell and make a killing. These include a $1 billion offer from Yahoo Inc. in 2006 and an overture from Microsoft Corp. that was worth a possible $8 billion or more, according to people familiar with the matter. Mr. Zuckerberg declines to comment on the talks, beyond saying: "It always sounds a lot more concrete than it actually is."

By early 2008, Mr. Zuckerberg began to take steps to help prepare the company to go public. He expanded his management team, hiring Google executive Sheryl Sandberg as his No. 2 in March of that year. He sought new perspectives by inviting Netscape co-founder Marc Andreessen and Washington Post Co. Chairman Donald Graham to join his board. He kept voting control over their seats, however.

Any IPO timing is squarely in Mr. Zuckerberg's hands. He owns more than a quarter of Facebook's stock and controls votes for three of five board seats, say people familiar with the matter.

There's little pressure from Facebook's existing shareholders—mostly venture capitalists who say they are pleased with its positive growth trend. Facebook executives have discussed how revenues for 2010 could hit between $1.2 to $2 billion, say people familiar with the matter. In 2009, the company said it was generating positive cash flow, more than enough to pay its 1,200 employees and overhead.

Russian investors Digital Sky Technology bought roughly $100 million in shares from employees and invested $200 million directly, giving DST a 3.5% stake. By opening the door to a single investor, he avoided increasing Facebook's shareholder base. The move also pacified employees, who splurged on new homes, cars and lavish vacations.

In February, Jim Breyer, a board member and an early Facebook investor, told a German audience of techies that Facebook wouldn't be going public in 2010. Later that month, Mr. Zuckerberg, having grown weary of the topic, said in an interview, "As a practice, we aren't going to comment on it."

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